Running your own small company can be the most rewarding experience for many – but there are risks involved, and many small businesses fail within the first few years. Good preparation is essential to give you the best chance of building a long-lasting and thriving business.
At LCH, we’ve set up and run several small businesses over the past 25 years. We’ve worked with dozens of other small businesses over that time, and have shared the stories of many more via sites like this one. Here are our ten tips to consider before starting out on your own.
1. Do you have a good idea?
An obvious question you should ask yourself – do you have a truly good business idea to start with? Is it something many other businesses are already doing, or is there something unique about it?
Of course, you can compete on quality and price with most things, but what sets you apart from the competition? What is your unique selling point? And how realistic are your goals?
2. Why do you want to start your own business?
You may have a great idea, and a strong urge to start up on your own, or you may feel compelled (as many were during the last recession) to work for yourself as sources of traditional employment aren’t plentiful. In either case, do you have the hunger and dedication to follow through and make a success of your idea?
3. Do you have the personality to run a business?
People with all types of temperament start and run their own businesses. However, there are some common traits which you will find successful business people share. You will need to be tenacious, dedicated, hard-working and resilient – essential skills to see you through the tough early months and years.
4. Who are your prospective customers?
Before you start trading, you must make sure that there is a market for your product. Failing to undertake market research can be one of the worst mistakes you can make in business. Prospective business owners may often be ‘blind’ to this step – convinced, as so many of us are, that their idea is a great one. This is one step to take where you should be willing to accept criticism and ask friends and colleagues for their honest feedback.
5. What are your competitors like?
Most businesses cannot afford the luxury enjoyed by a monopoly. Chances are, you will always have competitors. The key thing here is to ensure you can compete successfully, adapt where necessary, and carve a niche for yourself when you enter the market. You should be very realistic when assessing the competition, and once again, a strong USP is vital to differentiate yourself from the other businesses in your sector.
6. Can you set the new business up while still working?
Most people don’t have the luxury of simply leaving their day job to start up a new venture. You may well be able to do the groundwork for starting your own business while working for an employer. You may even be able to start operating your business in evenings and weekends. However, to truly succeed, chances are you will need to dedicate all of your time to your new idea for it to realise its full potential. Are you prepared to take the risk and give it your all?
7. Where will you operate your new business from?
For obvious reasons, many people start new businesses from home. If you are providing a service, particularly online, you may never require a large amount of business space to operate from. If working from home is impractical, there have never been more office space options available to fledgling businesses – from fully-serviced offices to shared workstations, and even cafés (if the owners don’t mind!)
If, on the other hand, you require specific types of business space (to make products, prepare food, etc.), the same applies. Try to secure the space you need on as flexible a basis as possible and don’t over-commit in the early days.
8. Do you have the funding available?
Many business owners fund their ventures personally – from savings, or with help from family and friends. If this is not an option, you can seek funding from a commercial lender – such as your business bank provider. The biggest cause of failure for small firms is cash flow drying up, so do bear this in mind. Make sure you have some contingency funding available at all times – to pay suppliers, staff and HMRC.
9. Do you have a viable business plan?
If you do require bank lending or investment, you will need a realistic, well thought-out business plan. Even if you don’t plan to use the document to show to third parties, many business owners find having a business plan very useful – to check progress against initial targets, and to ensure you don’t lose your focus. Remember, your business plan is a ‘living’ document – it can change and evolve with your business.
10. What business structure are you planning on using?
A crucial decision you should make early on is how do you want to trade? The most popular business types are a) sole traderships (‘self-employed’), and b) limited companies. The sole trader model is easier to get started with and more flexible, whereas the limited model is more tax-efficient and will limit your personal liability should things go wrong.
11. Do you have the skills required, or access to them?
Do you have all of the skills required to run all aspects of your new business? If not, can you afford to pay for any additional help you require? At some stage, you may need to take on your first employee. This can be a daunting task, but one which could prove fundamental to your future success. Find out what you need to do when you hire your first employee.
12. How will you use the web, and social media?
Very few businesses operate without some kind of web presence these days. Even if you don’t sell online, prospective clients/customers will likely browse the web to find out more information about you before they do business – even to find your contact details. Setting up a basic website is a very inexpensive process, but a very worthwhile one. Similarly, you may consider setting up Facebook and Twitter accounts for your business and keeping them regularly updated. LinkedIn is an essential took if you work in professional services (e.g. as a contractor, consultant or freelancer).
13. Are you aware of how your business will be taxed?
If you run your own business, you alone are responsible for understanding the tax rules for your business type, and to pay any tax owed accurately and on time. Limited companies pay Corporation Tax on their profits, and shareholders pay income tax on dividends received. Salaries are subject to income tax and NICs. If you are self-employed, your business and personal finances are treated as one for tax purposes. You must pay any income tax owed on your profits via Self-Assessment. If you take on employees regardless of your business type, you are responsible for paying your staff and deducting the correct amount of tax and NICs due under the PAYE rules.
14. Are you aware of any relevant rules and regulations?
Depending on the type of business you run, and the industry you are in, you may be subject to specific rules and regulations. You should take your time to find out if any particular red tape applies to you, and make sure you apply for any specific permits/permissions, and take out insurance if possible to protect yourself.
15. How will you market your business?
You will find it hard to gain new customers without a robust sales and marketing strategy in place. You needn’t spend a fortune either, as there are many smart ways to publicise your venture for pennies. Here are some simple PR tips you can use to market your business with a minimal outlay.
16. Do you have access to professional advice?
We recommend you hire an accountant early on in your business launch phase. They will be able to advise you on all types of matters, from which business structure to use, to how you remunerate yourself and your staff. A good accountant will save you money, and more than repay their annual fees.
You may also benefit from access to a local solicitor who will be able to provide advice on a multitude of things, such as creating employment contracts and dealing with any commercial issues you may encounter.
17. Do you have sufficient support in place?
Setting up and running your own business can be immensely rewarding (and tiring), but it can sometimes be a lonely occupation, especially if you’re a sole trader or director of your company. Many people find the transition from ’employment’ to ‘self-employment’ difficult from a social point of view – as you may no longer have colleagues to talk to and compare notes with. You may need to actively make efforts to interact with other people – networking, or ensuring that you set up regular meetings with clients, suppliers, and other small business people. If you have family support in place, all the better.
18. Keep an eye on your cash flow
What happens if a customer is late paying a bill, and your business doesn’t have the cash reserves to pay for some inbound supplies or even a tax bill? This is the nightmare scenario for a small business, but a very familiar one. You must keep on top of your cash flow, or risk insolvency. The best way to protect yourself is to invest in online accounting software, such as FreeAgent, so that you can view your financial position at any time. You should be able to easily identify late payments, or when the next tax bill becomes due… and take action well in advance, rather than leaving it until the last minute, or not being aware at all.
19. Do you have an exit strategy?
If may seem a little premature to have an exit strategy in mind just as you start out on your own, but it may add focus to why you’re setting up in business in the first place. Are you looking to run a business for a long time – to provide an income for the foreseeable future, or are you more interested in building something up with the firm intention of selling up at a certain time, possibly cashing in at the end of the process rather than during the growth phase.
20. Don’t give up
Starting up and running a new business is not easy. That’s why you need certain attributes mentioned in this article to keep you going. The feeling of success when you make your first order or get your first online sale is second to none. These small milestones in the early years will stay with you forever, and if you put in the time and commitment, and never give up, there’s nothing stopping you taking your business as far as it can go. Please browse the site for more ideas to inspire you, and please do get in touch to share your own story, or to ask any questions.